Airline Giants Rally As Cash Burn Ends

Delta Air Lines (DAL) and American Airlines (AAL) both reported positive cash flow in the second quarter, ending cash burn for the first time since the pandemic high. Delta stock and AAL stock rose.


Reporting official Q2 results, Delta Air’s easily beat on revenue with a smaller-than-expected loss. American Airlines late Tuesday gave preliminary Q2 figures that weren’t as bad as expected. Also late Tuesday, Delta said Tuesday it would add Boeing (BA) and Airbus (EADSY) jets to its fleet, citing a bounce-back in demand.

Delta Earnings

Estimates: Wall Street expected Delta to narrow per-share losses to $1.38 from $4.43 a year ago, according to FactSet. Revenue was expected to jump 323% from a year earlier to $6.204 billion.

Results: Delta lost $1.07 a share adjusted with revenue up to $7.13 billion. The Atlanta-based carrier reported a pretax profit of $652 million, ending a five-quarter string of losses and generating positive cash flow.

Outlook: Delta said Q3 capacity will be down 28%-30% vs. a year earlier. It was down 32% in Q2.

Delta reported the results as investors weigh a rebound in domestic travel with an uneven global vaccination rate and the spread of the more contagious delta variant of the coronavirus. The spread of that variant has prompted some nations to impose travel and health restrictions.

The airline last month said it expected to lose slightly less than initially expected for the second quarter. And it said it expected to record a pretax profit during the second half of this year, after losing money last year.

At a conference on May 25, Delta also said it expected travel trends for June to be better than May, with a full return of domestic leisure travel demand by June. The company has also said demand for premium seats, which bring in more profit, has outpaced that in the main cabin.

American Airlines Guidance

American Airlines late Tuesday said it expected second-quarter revenue to be down roughly 37.5% compared to the second quarter of 2019. That’s better than an earlier forecast for a roughly 40% decline. The airline said it expected a per-share adjusted loss of $1.67-$1.76. but it said it eked out positive cash flow, barely, for the first time since the pandemic.

Both the updated earnings-per-share and revenue forecasts were better than what Wall Street expected.

Delta Stock, Airline Stocks

Shares rose 1.7% to 42.02 in the stock market today. Delta stock still has Composite Rating of 14. The stock’s EPS Rating is also a weak 4, after the pandemic slammed the travel industry last year and left the airlines burning through cash.

American Airlines stock advanced nearly 3% to 20.60. AAL stock is in a consolidation with a 26.19 entry.

Among other airline stocks, United Airlines (UAL) and Southwest Airlines (LUV) climbed about 1%.

Delta on Tuesday said it agreed to add 29 used Boeing 737-900ERs and lease seven used Airbus A350-900s. The decision, Delta said, would help it “streamline and modernize its fleet” and improve fuel efficiency.

The airline also said the pandemic gave it an opportunity to simplify its fleet, retiring widebody and narrowbody jets, while bringing on newer jets at more attractive prices.

‘Wild Card’ For Delta

Airline stocks have fallen over the past several weeks. Last month, several European nations began issuing travel restrictions in an effort to curb the spread of the delta variant.

“Business travel appears to be recovering slowly but sequentially and the post-Labor Day period could represent a step-function for demand,” Joseph DeNardi, an airline stocks analyst at Stifel, said in a research note ahead of Delta’s earnings.

“However,” he continued, “we continue to believe corporate travel will not be fully restored to 2019 levels until at least 2023 (probably 2024).”

“The wildcard for Delta today is when international travel will recover in earnest but more contagious variants and varying vaccination rates remain hurdles for demand and thus capacity to be restored,” DeNardi said.


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